Dollar Pares Gains After Stronger Than Expected Employment Report

The dollar surged higher against all of its major competitors after the release of the much better than expected employment report for May this morning. However, the U.S. currency has since gradually pared its gains over the course of the trading session.

The strength of the report has left investors to ponder the timing of a Fed interest rate hike. Some investors are wondering if a rate increase could be announced as soon as this month, after the employment report blew past expectations. Meanwhile, others seem confident that an increase will be announced in September.

Employment in the U.S. increased by much more than anticipated in the month of May, according to a report released by the Labor Department on Friday. The report said non-farm payroll employment jumped by 280,000 jobs in May compared to economist estimates for an increase of about 225,000 jobs.

While the increase in employment in April was downwardly revised to 221,000 jobs from 223,000 jobs, the employment growth in March was upwardly revised to 119,000 jobs from 85,000 jobs.

However, the report also showed that the unemployment rate inched up to 5.5 percent in May from a nearly seven-year low of 5.4 percent in April. The increase came as a surprise to economists, who had expected the unemployment rate to remain unchanged, but the uptick primarily reflected an increase in the size of the labor force.

Meanwhile in Europe, Greece has decided to delay the crucial loan repayment to the International Monetary Fund that had been due today.

Greece asked IMF on Thursday to bundle the four payments due to the lender this month, totaling 1.6 billion euros, into a single payment to be made on June 30. It was the first time during the five-year long crisis that the country delayed a payment to the IMF.

The surprise announcement from Greece came just hours after IMF Managing Director Christine Lagarde expressed confidence that the government would honor the payment due on Friday. However, German Chancellor Angela Merkel said that the talks were nowhere near a conclusion.

Earlier this week, Greek officials said that the country could pay the 300 million euros due on Friday, while hinting that the government may opt not to make the payment if there was no sign of a deal by then.

A defiant Tsipras reportedly rejected some of the “extreme proposals” in the five-page proposal that creditors’ offered Greece. He is set to speak in the Greek parliament later on Friday to give details of his meeting with EU leaders earlier this week.

Germany’s central bank raised its economic growth outlook as the economy returned to a growth path with strength stemming from domestic demand that was boosted by favorable labor situation and substantial income increases.

In the semi-annual report released Friday, Bundesbank economists forecast real gross domestic product to grow 1.7 percent this year, faster than the prior estimate of 1 percent. For next year, growth is expected to be 1.8 percent instead of 1.6 percent.

The dollar surged to a 3-day high of $1.1049 against the Euro after the release of the employment report, but has since eased back to around $1.1115.

Germany’s factory order growth exceeded expectations in April helped by foreign demand, data from Destatis revealed Friday. Factory orders increased 1.4 percent month-on-month, faster than March’s 1.1 percent growth and a 0.5 percent rise forecast by economists. It was also the fastest growth since December, when it rose 3.3 percent.

France’ foreign trade deficit decreased more-than-expected in April, as exports rose and imports fell, figures from the Customs Office showed Friday. The trade deficit declined to EUR 3.0 billion in April from EUR 4.4 billion in the previous month. Economists had expected a shortfall of EUR 3.95 billion.

The British Chambers of Commerce downgraded its U.K. growth projection for this year citing weaker than expected expansion in the first quarter. The business lobby expects the economy to expand 2.3 percent this year instead of 2.7 percent. Nonetheless, the slowdown is expected to be temporary.

Britons’ inflation expectations for the year ahead improved from a more than 13-year low level, results of a quarterly survey from the Bank of England showed Friday. The inflation rate is expected to reach 2.2 percent over the coming year compared with 1.9 percent estimated in February, the lowest since November 2001.

The buck also climbed to a 3-session high of $1.5189 against the pound sterling early Thursday, but has since retreated to around $1.5275.

The greenback broke out to Y125.855 against the Japanese Yen Friday, its highest level since November 2002, but has since slipped to around Y125.600.

The leading index for Japan, which measures the future economic activity, increased as expected in April, preliminary figures from the Cabinet Office showed Friday. The leading index rose to 107.2 in April from 106.0 in the previous month. The latest reading matched economists’ expectations.

The material has been provided by InstaForex Company – www.instaforex.com

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